Tackle tax problem with a solution

The Assistant Treasurer,
David Bradbury
, wants foreign multinationals to pay a fair share of tax (“Tackling global tax rorts", AFR, February 22). Paying a “fair share" has been the well rehearsed mantra of the Treasury and the Australian Taxation Office for decades, but no one has been forthcoming with how to calculate a fair share.

There is nothing in the tax law and international tax agreements about the definition of “fair share". Foreign multinationals prefer to pay less rather than more tax. In this respect their behaviour is the same as the vast majority of people in the community.

If foreign multinationals are given a choice of where to pay tax, the “home" jurisdiction is preferred. Even if income is sheltered in a tax haven, ultimately the shareholders receive the benefit of profits and pay tax where they reside. Australian multinationals deal with tax rules similarly. Paying tax in Australia rather than elsewhere is best since it generates tax (franking) credits for Australian resident shareholders.

On the Bradbury view, this is a tax rort from the standpoint of the countries where Australian companies carry on business. Profit-shifting, treaty shopping and locating intangibles in low-tax or tax-free jurisdictions have been well understood ever since foreign investment was welcomed into the Australian economy following World War II. Now that Mr Bradbury has discovered a problem, let us have the solution.